Still Targeting Social Security

Fred Barnes of The Weekly Standard met with President Bush on January 2 and reported

On domestic policy, Bush was asked if he made progress in some areas for which he hasn't and probably won't get credit. Topping his list was his unsuccessful drive in 2005 to reform Social Security. Bush said his effort showed it's politically safe to campaign on changing Social Security and then actually seek to change it.

He also said it was important to have raised private investment accounts as an attractive option in reforming Social Security.

Three days later, Bush was interviewed by Cal Thomas and suggested that it would have been wiser politically to secure immigration/illegal immigration reform prior to tackling the politically difficult issue of Social Security, but again defended his effort to destroy- uh, er, reform- the program.

Partial privatization of Social Security, however, would be, at best, risky. As a study by the Center for American Progress Action Fund found

A person with a private Social Security account similar to what President George W. Bush proposed in 20054 that was invested in stocks retiring on October 1, 2008 after saving for 35 years (since 1973), would have seen a negative return on their account—an effective -0.6 percent net annual real rate of return—and lost $26,000 on the market.

And take a look at what happened in Italy when it recently privatized part of its social security system. Bloomberg.com notes

The global market meltdown has created losses for those who agreed to shift their contributions from a government severance payment plan to private funds meant to yield higher returns.

One of the inevitable problems with privatization of the system in the United States would be the inevitable disruption which would ensue when the market dips, resulting in a drop in benefits to recipients. In Italy,

Prime Minister Silvio Berlusconi’s administration is now considering ways to compensate as many as 1.2 million people who made the switch, giving up a fixed return for private plans linked to financial markets. It’s also letting people delay redemptions on retirement funds to avoid losses after Italy’s benchmark stock index fell 50 percent in 2008, destroying 300 billion euros ($423 billion) in wealth.

“The reform didn’t help anyone,” said Gabriele Fava, who heads the Fava & Associati law firm in Milan and writes about labor law. “Not the government, which was hoping everyone would make the switch to take the strain off its coffers, nor the workers who have not resolved the problem of needing a supplement to their social security pensions.”

Although the drive on the right here in the U.S.A. to chip away at Social Security took a blow on November 4, vigilance is necessary, as conservatives have resumed propagating the myth that all our problems have been caused by government, while all is well with American capitalism.